Illinois could be first state with ‘junk’ credit rating
CHICAGO - Illinois is on track to become the first U.S. state to have its credit rating downgraded to “junk” status, which would deepen its multibillion-dollar deficit and cost taxpayers more for years to come.
S&P Global Ratings has warned the agency will likely lower Illinois’ creditworthiness to below investment grade if feuding lawmakers fail to agree on a state budget for a third straight year, increasing the amount the state will have to pay to borrow money for things such as building roads or refinancing existing debt.
The outlook for a deal wasn’t good Saturday, as lawmakers meeting in Springfield for a special legislative session remained deadlocked with the July 1 start of the new fiscal year approaching.
That should alarm everyone, not just those at the Capitol, said Brian Battle, director at Performance Trust Capital Partners, a Chicago-based investment firm.
“It isn’t a political show,” he said. “Everyone in Illinois has a stake in what’s happening here. One day everybody will wake up and say ‘What happened? Why are my taxes going up so much?’ ”
Rating agencies have been downgrading Illinois’ credit for years, though they’ve accelerated the process as the stalemate has dragged on between Republican Gov. Bruce Rauner and the Democrats who control the General Assembly.
The agencies are concerned about Illinois’ massive pension debt, as well as a $15 billion backlog of unpaid bills and the drop in revenue that occurred when lawmakers in 2015 allowed a temporary income tax increase to expire.
“In our view, the unrelenting political brinkmanship now poses a threat to the timely payment of the state’s core priority payments,” S&P stated when it dropped Illinois’ rating to one level above junk, which was just after lawmakers adjourned their regular session on May 31 without a deal. Moody’s did the same.
Battle says the cost to taxpayers in additional interest the next time Illinois sells bonds could be in the “tens of millions” of dollars or more.